Resolution of the Supreme Court, dated July 07, 2022, case No. 910/1801/21. Available at https://reyestr.court.gov.ua/Review/105178962

The Supreme Court upheld the judgement of the court of first instance …and ascertained:

The plaintiff (an individual entrepreneur) submitted to the Kyiv City Commercial Court an action against the defendant (an individual entrepreneur) in order to recover UAH 250 000 (approx. EUR 6300) as penalties under a contract on the provision of advertising services, dated September 1, 2020; UAH 700 000 (approx. EUR 17700) as the lost profit; UAH 250 000 (approx. EUR 6300) as damages; and UAH 50 000 (approx. EUR 1265) as moral damages.

The court of first instance granted partial relief of UAH 250 000 as the penalties, and the appellate court overruled and dismissed the action completely.  

On 01.09.2020 the plaintiff, as the client, and the defendant, as the contractor, entered into an agreement on the provision of advertising services (hereinafter – the Agreement), according to the provisions of which the contractor undertook to provide advertising services by placing informational/advertising texts, video content regarding a giveaway on a personal account on the social network Instagram, and the client undertook to accept the properly provided services and to pay for them (paragraph 1.1 of the Agreement).

In Annex No. 1 to the Agreement, the parties agreed on the place and period of the service provision, on the period of “giveaway” running and on other necessary provisions.

Clause 4.2 of the Agreement stipulates that for breach of any of the obligations specified in clauses 1.1-1.2 of the Agreement, the contractor shall pay penalties to the customer.

According to sub-clause 5.6.1 of clause 5.6 of Annex No. 1 to Contract No. 0109/20, in case the contractor fails to perform her obligations to increase the number of subscribers to the corresponding profiles/accounts, the contractor must pay the client a penalty in the amount of UAH 250 000, provided the number of the subscribers is less than 30 000.

In accordance with paragraph 5 of Annex No. 1 to the Agreement, the contractor undertakes, for the period of the draw specified in paragraph 3 of this Annex, to increase the number of subscribers to the corresponding (reserve) profiles/accounts in the amount of at least 50 000 people/subscribers for each profile/account. The parties agreed that on the starting date of the draw, the number of subscribers to these profiles/accounts is 0 (zero). At the same time, if an unfair/automated increase in the number of subscribers (more than 5%) is detected, the services will be considered to be of poor quality, and penalties may be applied in accordance with clause 4.2 of the Agreement.

In accordance with paragraph 4 of Annex No. 1 to the Agreement, the contractor, as part of the draw, undertook to provide the client with the following advertising and promotional services:

• to provide a high-quality personal photo to be posted on the official Instagram account where the draw will take place;
• to pass the verification procedure for the official profile/account (if necessary);
• to make announcements (4-8) of the drawing, in the “Stories” mode, on the certain Instagram profile/account;
• to take an active part in the selection of the prizes for the draw; to purchase and to send the prizes to draw winners;
• during the period of the draw, to be subscribed to all Instagram profiles/accounts of all sponsors of the draw (the list will be provided by the client);
• before the start of the draw (at least 3 calendar days in advance), to publish a video, in the “Posts” and “Stories” mode, featuring her own presence, her unique looks style, and an overview of the prizes; and the video should have a creative voice massage informing subscribers about taking part in the draw, the terms, the necessity to subscribe to the Instagram profile, to encourage others to take part in the draw, and to be active on these profiles/accounts;
• on the day of the draw to publish a video, in the “Posts” and “Stories” mode, with an announcement of winnings, an overview of the prize fund, to encourage her subscribers to take part in the draw.At the request of the client, to re-shoot and to publish a new video in compliance with all the above requirements in case of low activity on the official profile page of the draw and on the sponsor’s pages;
• to make periodic reminders (after 1 calendar day from the starting date of the draw), in the “Stories” mode, with information about the draw and its terms, and the possibility of getting additional prizes for activity.

In the expert report of the Ukrainian Numbers and Address Operation Center, dated December 16, 2020, No. 367/2020-ЕВ provided to the court by the plaintiff, it is documented that at the time of the draw, the number of the subscribers was 22 886.

The lower courts ascertained that, under the provisions of the Agreement, the contractor undertook, during the period of the draw, to increase the number of subscribers to the corresponding (reserve) profiles/accounts in the amount of at least 50 000 people/subscribers for each profile/account.

Consequently, the Agreement, according to the will of the parties to it, provides, in particular, that a certain result will be achieved as the outcome of the provision of the advertising services.

The court of first instance agreed with the defendant’s explanation that she could not have swayed other people to subscribe to the respective (reserve) profiles/accounts, since these persons acted according to their own free will. But in the court’s opinion the parties entered into the Agreement according to which the defendant had undertaken to increase the number of the subscribers.

Having studied the circumstances of  the defendant’s failure to increase the number of the subscribers in the amount of at least 50 000 people/subscribers for each profile/account, taking into account the principle of freedom of contract, the binding nature of the agreement, taking into account that the defendant had taken on the corresponding obligation, but had failed to comply with it, the Supreme Court agreed with the court of first instance that there were legal grounds for recovering from the defendant UAH 250 000 as the penalties in favour of the plaintiff.

© Yuriy Karlash, English translation, 2022

© Yuriy Karlash, compilation, 2022